It's October 25, which means there are only 61 days until Christmas!! It's rolling into the time of year where everyone is either looking forward to a holiday or is madly planning one last minute because they are 100% done with this year. Regardless of which category you fall into, you are going to need foreign currency at one point or another. Que Travel Money Oz. Consider us your Christmas foreign exchange elf, working away to ensure you take off with more travel money on your next holiday.
It's been an interesting week for the Aussie Dollar, as ithas felt the effects of Brexit and the corresponding mood of investors as they adjust to Brexit developments. Last week the AUD was riding high off the back of investor confidence and a 'risk-on' attitude in markets. This week is slightly different, as the prospect of more Brexit uncertainty, next week's US interest rate decision and news from the Bank of Japan have changed the market mood. With this in mind, today, one AUD will get you:
Compared to last week, the AUD is up against the EUR and GBP. If you are buying foreign currency soon, we recommend adding Rate Move Guarantee to your purchase in-store. It's free, and if the rate improves within 14 days of purchase we will refund you the difference!*
What has impacted foreign exchange markets this week?
This week the European Central Bank kept their interest rates and asset purchases on hold. Currently, they are purchasing 20 billion euros worth of assets each month, and markets expect this to become more aggressive as we roll into the new year. The asset purchases are in place to support and speed up the European economy.
This was the last meeting for current president Draghi, who closed off his time with a speech highlighting a gloomy assessment of the European economy, reiterating the need for stimulus to prevent further downside risks and improve inflation.
European data released this week supported his statement, coming in weaker than market expectations and showing that Germany is on the brink of economic recession.
The Euro is unsurprisingly weaker as a result of this, which means more mulled wine for you at Christmas markets on your winter euro trip.
Whew, it's been a big week on the Brexit front. I've tried my best to recap and make it as painless as possible. Here goes nothing.
On Saturday, UK parliament met to vote on Boris Johnson's Brexit deal. However, they instead ended up voting on a bill called the Letwin amendment, which says that Parliament won't support Johnson's Brexit deal until other bits of legislation required for the agreement is passed.
As Johnson didn't get his deal passed by the deadline set by the Benn Act, he had to begrudgingly write to the EU asking for an extension until January 31. He sent an accompanying letter stating that he thought an extension was a huge mistake.
On Monday Johnson published his 110-page agreement and requested three days of intense debate. This means MPs had to read and scrutinise the whole bill overnight, which is a tough task in anyone's books.
MPs have begun a series of votes on the amendment (to get the legislation we mentioned above passed). He won the first vote which was around the legislation designed to implement the deal. Parliament also supported the Queen's speech, which is an outline of Johnson's policies around issues like pensions, the environment, domestic abuse and Brexit.
MPs can now vote on specific amendments to Johnson's Brexit bill. This could drag on and potentially change the shape of the Brexit bill altogether.
Yesterday Johnson announced plans for an early general election on December 12. His lack of working majority in Parliament is working against him, and preventing the approval of his Brexit agreement. The prospect of an election will be put to the vote in Parliament on Monday and requires a two-thirds majority to go ahead. At this stage, the Labour party is not supporting it.
EU members are still debating the extension, and are expected to reveal their decision early next week. It is widely believed they will approve the extension; however, it is unknown if they will grant the full three months.
Whew, how did I go? If you're still unsure about all of this Brexit nonsense, we've got a whole page dedicated to explaining it.
All of these developments proved quite tumultuous for the value of the pound. It started strong against the Aussie dollar, as markets were excited that progress was being made in terms of the Brexit deal and hopes of an extension. However, the prospect of a general election means more uncertainty which has played against the pound’s favour. Aussie's rejoice though, as it means the AUD has seen upward pressure against the pound.
Overnight Bloomberg reported that the Bank of Japan (BoJ) is considering holding back on further monetary policy stimulus at their next policy meeting next week. BoJ officials said relative calm in financial markets and a lack of deterioration in market risk means there is a reduced need for stimulus.
This goes against broader market opinion, especially considering Japanese inflation is quite low, and there is a risk that the Japanese economy will contract in the last part of 2019.
Regardless of the market opinion, the BoJ announcement put upward pressure on the value of the Japanese yen against the Aussie dollar.
USA/ China trade talks
There haven't been any huge developments in the trade war this week, as high-level talks are set to resume today. Negotiators are working towards the final phase of the trade agreement in time for the APEC summit in Chile next month.
Fingers crossed this all goes to plan, as good news on the trade war front supports the value of the Aussie dollar. This is not just because of our close ties to the Chinese economy, but also because a trade deal will make investors more confident in the AUD.
Next week is a big one for the AUD, as Q3 2019 CPI data and retail sales reports will be released. These are the last significant reports before the November Reserve Bank of Australia meeting. At this stage markets are only pricing a 19% chance of a 25 basis point cut to interest rates; however, if next weeks data comes in under expectations, it could increase this chance and put downward pressure on the value of the Aussie dollar.
Until then, enjoy your weekend and get started on that Christmas shopping. It will be here before you know it.
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